“The cost of a thing is the amount of what I call life, which is required to be exchanged for it immediately or in the long run.” — Henry Thoreau

The medium of trade in a modern economy is overwhelmingly currency.  In the U.S. it is U.S. dollars.  We use terms like “spending money” and “making money”, but that isn’t really what we are doing.  What the overwhelming number of us are actually doing is trading our time for goods or services now or in the future (by saving).  Some of us trade a lot of time for a small amount of stuff and some of us trade a little time for a lot of stuff.  What you are really giving up in return for that stuff is a part of your life, which you can measure in time.

A typical person probably does not have an accurate picture their real earnings or their real spending in those terms.  If you are thinking of buying a $1,000 large flat-screen TV, it might be good to know how much of your life it will cost you, and as you will see below you can’t just use your alleged hourly rate and do the math.  It’s more complicated.

Aside from not really knowing how much we earn and spend in terms of our time, earning and spending hardly seem real anymore.  It’s become very abstract.  You can get your paycheck direct deposited and pay your bills automatically.  We don’t actually see money coming in and money going out.  I work and my money automatically goes into my bank account.  I don’t ever see it.  I call my debit card my “magic” card.  I give people my magic card and they give me stuff.

Calculate Your Real Earnings

I’m going to use round numbers for simplicity.  If you make $50,000 a year and work a 40-hour week, then your hourly rate is approximately $25 per hour.  You might think that $1,000 TV will cost you 40 hours of your life and you can pay for it in a week.  Actually no.  Let’s look at things a bit closer.  Please don’t be tempted to quibble over the numbers; they are just there to illustrate the point.  You can do your own calculations.

You probably spend more than 40 hours a week working because you have other time invested in your work week like commuting and getting ready.  If you spend 1.5 hour per day on your commute and 0.5 hours per day getting ready for work, you are actually spending 50 hours a week getting paid for 40 hours a week.  That drops your hourly rate from $25 to $20 ($1,000 per week / 50 hours).

Nobody I know keeps all their money away from the government.  Let’s say in total your payroll taxes (income, Social Security, Medicare) take 15% of your income.  Your hourly rate is now $17 per hour ($850 per week / 50 hours).

If you spend $200 a week on child-care that you wouldn’t have to spend if you didn’t work, your hourly rate is now $13 ($650 per week / 50 hours).  If you drive 150 miles a week and it costs a total of $0.40 per mile in total vehicle costs, that is another $60 per week.  It costs an average of about $30 dollars a week extra in food to eat at work and on the run.  Your are now down to about $11 an hour.  There could be other costs.  You may be paying for house and lawn care that you would do yourself if you didn’t work.  This could easily chew up another $1 per hour and bring you down to $10.

Whatever your income and your time, it’s well worth the effort and probably will be quite an eye-opening to actually sit down and calculate your true hourly earnings.  Gross dollars per month or year are just too abstract and don’t give you a useful picture for the purpose suggested here.

Calculate Your True Costs

So that $1,000 TV that you thought would you 40 hours of life actually would consume 100 hours of your life. (at $10 per hour).  That’s 100 hours of your life, not some bits stored on a computer somewhere.

What about that $25,000 car that will likely cost $30,000 when you add interest and payments?  That requires 3,000 hours of your life.  If you have to have a car and can choose between the $15,000 model and the $25,000 model, keep in mind that more expensive model will require 1,000 extra hours of your life.   That’s a better way to decide than the difference in monthly payments made in magic money.  That 1,000 hours isn’t going to just take 5 months either.  That would assume you were only paying for the extra nice part of the car and nothing else.  Most of your life is already being consumed by shelter, food, clothing, and everything else.  That nice car is going to slice parts of your life away for many years to come.  Is it worth it?

When you buy that $100,000 home that will really cost you $175,000 over the life of the mortgage, you can now see that it will consume 17,500 hours of your precious life. That’s not even the true cost because taxes, insurance, and maintenance add a lot more.  If you rent and your share is $500 a month, then you know that you are spending 50 hours a month out of your life just to pay the rent.

How You Spend Your Life

None of this leads to any particular conclusion as to what you should or should not do.  Everyone’s situation, needs, and desires are different.  I do think a good use of a small part of your life would be to go through this exercise to find out how much of your life is required to obtain various goods and services.  You should be making informed decisions about how you use your most precious resource.  When you commit to an expense, big or small, you are trading part of your life for it.  You will never get that life back so don’t trade it casually.

Isn’t that a better way to look at spending?  You waste a $1,000 on something you didn’t use and you think so what, I can afford it.  When you realize you wasted part of your life on it, it takes on a different meaning.  Even if you love what you do and you don’t consider it work, you still must choose how to spend or save it.  Why would you casually waste it?  Don’t lock yourself into the Golden Handcuffs.  It really sucks to get 30 or 40 years down the road and realize you traded your life for a bunch of stuff or experiences you didn’t enjoy.  You don’t get to go back and do it over.

My attitude about how I spend has definitely changed.  Realizing when you give someone a dollar you are giving them some of your life is a big step towards more awareness.  It’s truly a different way to look at it.  When you are young, it can seems like you have an eternity to figure things out and get it right.  You don’t and it will go by faster than you would ever imagine.  Spend wisely my friend and thanks for spending a small part of your life on my blog.

What do YOU think?  Leave a comment and join the conversation.